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From: Bob Bassman
Re: US Supreme Court Upholds-Reverses Second Circuit In Two Swipe Fee Cases

A. Interchange Settlement

Last week, the U.S. Supreme Court refused to hear an appeal by Visa and MasterCard over the
$7.5 billion credit card interchange fee settlement, effectively upholding the Second Circuit
Court of Appeals in New York's ruling that the settlement did not fully represent the interests of
retailers. This is good news for retailers because, if the settlement was approved, no one would
have a right to ever again challenge the interchange fees.

The federal appeals court in New York disapproved the 7.5 billion dollar settlement of the swipe
fee litigation against Visa and MasterCard. The case was brought as a class action on behalf of
12 million merchants who accept Visa and MasterCard. The Court of Appeals held that an entire
class of entities who are not eligible to obtain a monetary award from the settlement fund were
inadequately represented by the attorneys representing the class. The Court also voided the order that allowed the case to proceed as a class action.

The original claimants objected on antitrust grounds to various network rules imposed on the
merchants by the credit card companies, including a prohibition on surcharging for credit. After
nearly 10 years of litigation, a federal district court in Brooklyn approved a settlement agreement
releasing Visa and MasterCard from all claims in return for a distribution of the settlement
proceeds to those who paid "interchange fees" during the period January 1, 2004 to November
28, 2012. All class members, including those who are not eligible to participate in the
distribution of the settlement money, were required to release Visa and MasterCard for all future
liability arising from the actions that prompted the lawsuit. The Court of Appeals held that this
latter group received no material benefit from the settlement even though they were required to
release all of their claims. It ruled that they should have been separately represented.

The Court of Appeals suggested, without so stating, that the attorneys representing the class sold out one group of plaintiffs to obtain the cash award that would benefit another group, as well as benefitting the class attorneys who were awarded in excess of 500 million dollars in legal fees. On the basis of this conflict of interests, the court decertified the class and returned the case for further proceedings to the lower court.

B. State Surcharge Bans Violate Retailers' 1st Amendment Rights

A New York law that prohibited retailers from informing customers that using a credit card costs
more cannot violate the merchants' 1st Amendment free speech rights, the U.S. Supreme Court
ruled last Wednesday. The unanimous but narrow decision from Chief Justice John Roberts
gave lower courts the approval to hear cases on whether such laws (seven other states have
similar statutes) hamper how businesses can advertise prices.

At issue was a Second Circuit Court of Appeals ruling that said the law was valid because it
regulated price. As the state interpreted the law, a merchant could advertise a $10 cash haircut
and a $10.30 credit card haircut (or a $10.30 haircut with a "cash discount" option), but the
retailer couldn't post a $10 haircut and a 3% or 30-cent credit-card surcharge. 

Writing for a unanimous court, Chief Justice Roberts said that the law controls speech, not price. "The law tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer," Roberts wrote in the court's decision. "Sellers are free to charge $10 for cash and $9.70, $10, $10.30 or any other amount for credit. What the law does regulate is how sellers may communicate their prices."

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C:\PMAA\Interchange Fee\Supreme Court Rules in 2 Cases.doc